Planned Giving With an Impact

Many of these decisions relating to lifetime giving and planned giving can be paralyzing, and several people opt to avoid the process altogether. Fortunately, there are several methods that can be leveraged to maximize the impact of these gifts whether they be to individuals or charities, including some new opportunities as a result of the SECURE 2.0 Act.

Lifetime Giving

While the focus of this article is primarily on planned giving, lifetime giving can confer many benefits onto donors as well. Specifically, lifetime giving provides a good method of spending down an estate, especially for those who need to do so for estate tax planning purposes. It’s also worth considering that the Tax Cuts and Jobs Act (TCJA) is scheduled to sunset at the end of 2025, which would lower the estate lifetime exemption amount to $5 million indexed for inflation. By giving up to $18,000 per donor per year to individuals, plus charitable donations, which create an income tax deduction for those who itemize, high-net-worth individuals can spend down their estates.

Additionally, gifts during life can be monitored and questions can be answered with appropriate insight to the original intent should they arise. Gifts to individuals upon one’s passing result in a step up in basis for the heir and long-term holding, even if sold that day. Gifts to charities upon one’s passing result in an estate tax deduction for those with large enough estates. Thus, the decision whether to give gifts during life versus at death involves balancing and weighing many factors. The “best” option is often some combination of the two, but is ultimately determined on a case-by-case basis.

Charitable Gift Annuities

The first high-impact planned gift to consider is a charitable gift annuity (CGA). CGAs were voted “best planned gift” by the Stelter Group two years in a row. We have known about qualified charitable distributions (QCDs) for a while, up to $100,000 per year, for those over the age of 70.5. The SECURE 2.0 Act added to this provision and now allows a one-time QCD election from an individual retirement account (IRA) to a CGA of up to $53,000 in 2024. RMDs are taxable events, while these QCDs are not, creating an income tax savings. CGA rates have been increasing, resulting in higher payout amounts for the donor and guaranteed lifetime income while benefiting charity at the same time.

Donor-Advised Funds

Another high-impact gift to consider is a donor-advised fund (DAF). These funds are versatile, allowing donors to direct the funds to charity when, where, and how they want, while receiving the income tax deduction in the year the money is put into the DAF.

This flexibility allows donors to frontload multiple years of charitable donations to itemize in one year, and take the very high standard deduction in other years. Thus, a donor can front-load multiple years worth of donations into a DAF and achieve a higher deduction than the standard while simply opting for the standard deduction in other years.

Appreciated Stock

The final high-impact gift to discuss is appreciated stock that has been held for more than a year. Gifts of appreciated stock result in an income tax deduction in the year of the donation, plus avoidance of capital gains taxes that would be paid in the year of a sale. In the event of a capital loss, sell the asset, claim the capital loss, donate the remainder, and take the charitable deduction.

If these stocks are in an IRA, and the donor is at least 70.5 years of age, keep in mind that with the passage of the SECURE Act, Stretch IRAs are not allowed anymore for inherited IRAs. They must be liquidated within 10 years. These events trigger ordinary income tax liability for the heir. Donating stock or an IRA to a charity avoids this, and taking advantage of the QCD during one’s lifetime after age 70.5 can help spend down the estate with an asset that has fewer inheritance benefits than in the past. In fact, for some people, the tax liability on the RMD would be considered a hardship or inconvenience, not to mention the burden of not messing up and forgetting to take the RMD. Although the SECURE 2.0 Act gradually increases the age for RMDs, the act did not change the QCD eligibility age from 70.5. Thus, a donor can take advantage of QCDs before they are required to take their RMDs.

Other Methods

In addition to these high-impact gifts, individuals should still consider the more traditional charitable bequests via will or trust, life insurance, retirement assets, payable on death/transfer on death, and a life estate, all taking effect after death. Life insurance, retirement, and POD/TOD beneficiaries are relatively easy to set up and usually at no cost. A will, trust, or life estate may require an attorney to draft the documents, so the cost is higher, but still a great option for many people. These gifts can be used effectively in combination with one another.

This article is adapted from an article that originally appeared in “Planned Giving Today.”

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